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Credit Card Processing Equipment

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Merchant Account & Credit Card Processing Equipment

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Finding the correct credit card processing equipment for your business can prove to be almost as tricky as finding the correct merchant account. There are a lot of different credit card processing options available and there are pros and cons to each method of processing.

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Important Pointers about Processing Equipment

Avoid Proprietary Equipment - Certain types of credit card terminals and processing equipment will only work with a single (or very few) credit card processors. This type of equipment is called proprietary equipment. If you purchase a proprietary piece of equipment you will be married to the processor that the system is compatible with.

If you ever want to switch merchant account providers you will need to purchase a new piece of equipment instead of reprogramming your existing equipment. Credit card processing equipment and software made by major manufacturers such as Hypercom, Verifone, and Lipman Nurit are compatible with most processors. Most of the machines made by each of these three companies can be reprogrammed if you ever need to switch credit card processors.

Purchase Equipment from a reliable Source - The best place to purchase credit card equipment is from your provider when you setup your merchant account. Many providers will offer an equipment discount to merchants when they set up a merchant account. If you do find a better deal elsewhere, be sure that you are getting what you pay for. Many merchants find that purchasing credit card machines from unverifiable third parties, like those found on EBay, can be an expensive headache. Credit card processing machines and equipment can be very different even if they have the same name and appearance. Like any electronic device, it's what's on the inside that counts.

Credit card terminals require a certain amount of memory in order to operate on a processor's systems. Terminals that are sold second-hand may not have enough memory to meet the demands of the new programs that processors are building. Also, it's always a good idea to get some kind of warranty or price protection on equipment. If you purchase your equipment through your provider they should be happy to assist you with terminal issues if they should arise. A company that is only interested in selling you equipment has already gotten what they want once the sale is made and it may be tough to get assistance after the initial sale.

Use Surge Protectors - Credit card machines and terminals are very sensitive to power fluctuations. Their circuitry is very delicate and even a small power surge can disrupt a terminal's function. If the circuitry of a terminal is damaged the current batch and transaction information may be lost as well. Unfortunately, in a situation like this a $400 credit card machine may be the least of your worries. To avoid having your terminal fried in a thunderstorm or by a random power surge, you should never plug your terminal directly into a wall outlet. Instead, plug your credit card terminal into a quality surge protector.

Avoid Leasing Equipment Unless Necessary - The option to lease credit card terminals and machines has been around since before the advent of the Internet and the subsequent fierce competition among merchant service providers. This competition has brought the price of equipment down to a point where it can costs as much as 5 times the original purchase price of a piece of equipment to buy out a lease agreement. Lease agreements are typically contractually bound for a four-year period or longer.

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Credit Card Machine Programming & Compatibility

Credit card processing terminals and machines are electronic devices that are similar to personal computer in a number of ways. Since most people are familiar with personal computers, we'll use computers as a basis for comparison to more easily describe credit card processing terminals and machines.

Appearance - Just because two credit card machines look exactly the same and may even have the same manufacturer and model number, you should not assume that the two machines are capable of the same performance and functions. When shopping for a credit card machines you will inevitably find the same exact make and model machine being advertised for different prices by different vendors. Although the terminals may look the same and be made by the same manufacturer, they can have different memory capacities, different features, and different functions.

Just like with personal computers, credit card machines may look exactly the same on the outside but be very different when it comes to memory, performance, and features. When shopping for credit card terminals you can't simply compare machines by the manufacturer and model, you also need to get the exact details of each terminal that you are looking to purchase.

Memory - In order for a credit card machine to function it has to be programmed by a processor with their platform information and your unique merchant account information. You cannot buy a credit card machine off the shelf, plug it into a phone line, and expect to process credit cards. All terminals must be programmed before they will function.

The program that is loaded on a credit card machine tells the terminal how to handle transactions. The program contains information about security, contact information, the qualification matrix, your merchant account information, and more. The program that a processor loads onto a credit card machine is much like the operating system on a personal computer - like Microsoft Windows for example.

The operating system tells the computer how to function, how to handle information and how to keep itself secure. Just like computers with operating systems, there are minimum memory requirements for terminals to run programs as well. For example, if a processor's program requires at least 256K of memory, a terminal with only 128K of memory will not be able to run the program. VISA and MasterCard routinely release security updates that require processors to issue new programs and downloads for their customer's terminals. Each new release can potentially increase the size of the program. When shopping for a terminal it's in your best interest to buy a terminal with at least 512K of static memory.

Platform Compatibility - Credit card processors operate on different platforms. Larger processors like First Data Corporation even have multiple platforms. Each platform has a different program-build as described like those talked about in the paragraphs above. The best credit card machines to buy are those that are compatible with the largest number of platforms and processors. As suggested in other areas of this guide, you should try to stick with popular models of machines that are built by the major manufacturers such as Hypercom, Verifone, and Lipman Nurit.

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Credit Card Terminals and Machines

Aside from staying away from proprietary credit card machines as noted above, it's important to understand that credit card machines do not cost as much as people commonly think. Many all-in-one terminal combinations can be purchased new with a merchant account for a very reasonable price.

Credit card swipe terminals are most commonly used in conjunction with a retail merchant account or with basic mail order merchant accounts where the credit card information is keyed-in. Most merchants prefer to purchase a credit card machine with a built-in printer in order to save counter space.

Most credit card processing machines and terminals communicate with the processor through an internal modem that dials out over a standard phone line. Credit card machines only require a phone line when they are communicating with the processor and they can be left unplugged any other time. Most businesses use a telephone line splitter that allows them to put their credit card machine on the same line as their fax machine or even their regular phone. This eliminates that hassle of plugging in the terminal every time a customer wants to pay by credit card if there is only one phone line available.

High speed Internet-ready credit card machines have also become popular. These terminals tend to be a little faster at processing transactions and they will not tie up your phone line. The terminal's ability to communicate with the processor via the Internet also translates to monetary savings by eliminating the need for additional phone lines.

Credit card processing terminals and machines do not currently integrate with computer accounting software or printers meant for your personal computer. Terminal integration with computers is something that would be very convenient but has yet to be released into the marketplace. Credit card machines are strictly stand-alone applications.

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Credit Card Processing Software

Credit card processing software enables a merchant to process credit card transactions using their personal computer. PC software can be used with card-present and card-not-present merchant accounts, but it requires the use of a magnetic card reader in order to properly function as a card-present application. A magnetic card reader is a device that plugs into the computer making it possible for the merchant to swipe credit cards and perform an electronic data capture.

PC software communicates with the processor through a standard telephone line or through a high-speed Internet connection. If you will be using processing software that communicates via a phone line you will need to make sure that your computer has a telephone modem that is connected to an active phone line so that the computer is able to dial out.

It's a common misconception that because PC processing software resides on a computer it will be able to integrate with other programs on the computer such as accounting software. For the most part this is not true. Most computer processing software solutions operate independently of other programs on the host computer. However, there are programs that have been released by major accounting software providers such as QuickBooks that are able to process credit card transactions and integrate with accounting software. Because these types of software solutions are proprietary, the rates and fees are usually substantially higher than that of normal merchant accounts and are often enough to deter most merchants from using them.

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Online Internet Payment Gateways & Shopping Carts

Payment processing gateways and shopping carts can be a bit intimidating at first, but they're very important. Choosing the right payment processing gateway and shopping cart solution is crucial to building a successful e-commerce website. There are a lot of gateways and shopping carts solutions available and finding the right one for your business may prove frustrating if you do not have experience with the subject.

A gateway should be secure, robust in features and functionality, and be able to integrate with a large number of processors and shopping carts. Gateways usually carry three additional fees in addition to regular merchant account fees. There is commonly a purchase price for the gateway, a monthly fee called a gateway fee, and a per transaction fee. Many gateway providers also charge a transaction fee that is in addition to the transaction fee charged by your merchant service provider.

Most providers have a gateway solution that they offer along with the Internet merchant accounts that they provide. However, not all providers offer a shopping cart solution and both a shopping cart and a gateway are necessary to accept credit card transactions online. Some providers offer a "free" shopping cart solution as part of their marketing and advertising. As with anything, you pay for what you get, and while a free shopping cart my serve the needs of a new business it's functionality may not be adequate for a business with moderate to heavy traffic.

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Credit Card Processing Machine PIN Pads

There are two different types of credit card processing personal identification number (PIN) pads. The first type is called an external PIN pad. An external PIN pad is a stand-alone piece of equipment that connects to a credit card machine through a cord that resembles a phone cord. External PIN pads are the most common type of PIN pad and they're most often recommended for reasons that we'll cover in a moment. The second type of PIN pad is called an internal PIN pad. An internal PIN pad is incorporated in a credit card machine.

PIN pads are only useful when used with a card-present merchant account where a customer will be available to provide their PIN number and debit card. Furthermore, PIN pads may not benefit all types of businesses. As we will discuss later, debit cards can be processed as PIN-debit or signature-debit transactions and each method carries different rates and fees. Depending on the details of your business a PIN pad may not be beneficial. All of this will be covered in detail later in this guide. For now, we'll look at the difference between internal and external PIN pads.

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Shared Characteristics of Internal and External PIN Pads

Encryption - All PIN pads must be encrypted in order to comply with VISA and MasterCard security standards. When existing PIN pads are reprogrammed to function with a new merchant account the PIN pad will have to be sent out to be re-encrypted. This service may require merchants to pay for shipping costs and encryption fees. PIN pads that are purchased new with a merchant account will arrive already encrypted and ready to use.

Flashing - Before a PIN pad can be re-encrypted it must be flashed. Flashing is a term used to refer to the process of clearing a PIN pad's memory so that new encryption can be loaded. When a PIN pad is flashed there is a chance that it may be damaged and rendered useless.

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External PIN Pads

External PIN pads are the most common type of PIN pad. Customers enter their PIN number on the PIN pad to complete a transaction. External PIN pads are attached to a terminal via a cord and a customer is able to pick up the PIN pad to enter their number in privacy. If an external PIN pad ever malfunctions or fails it can be replaced without causing any downtime to the credit card machine. If necessary, the PIN pad may be sent back to the provider separately to be re-encrypted or repaired without having to send the whole terminal.

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Internal PIN Pads

Internal PIN pads are incorporated in a credit card processing machine. In order for a customer to enter their PIN number on an internal PIN pad they must be given access to the credit card machine. With concerns of identity theft, many consumers are very secretive about their PIN numbers and they like to have privacy when entering their PIN number.

PIN pads can't be flashed or encrypted remotely making it necessary for the PIN pad to be sent to the equipment dealer. If an internal PIN pad requires maintenance the entire credit card machine must be sent to the dealer, leaving the merchant unable to process credit cards in that time. Also, PIN pads can potentially get fried when they are flashed for re-encryption. If a terminal's internal PIN pad gets fried it often results in the failure of the whole unit.

 

Questions & Comments

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On October 15, 2009 Tom said:

Great article !! I was torn between leasing a machine or just buying one. After some research and reading articles such as this one I decided to buy.
I would just like to add that buyer beware when searching for a machine. I found some places offer free machines but want to lock you into contracts with some pretty nasty fees.
Thanks again for the great article.

On October 29, 2009 Gary said:

Hello.........my name is Gary and I have question concerning credit card swiping machines. My question is; what is the memory for these machines? For example; could a credit card purchase be made in June and then looked back up a few months later. Or is there a memory at all? And how would that transaction be looked up?

Thanks,

Gary

On October 29, 2009 Ben said:

Hi Gary,

Credit card machines do have memory, but it's used for running the machine's processes, not for storing transactions in the way you're implying. Machines store individual authorizations in a batch file that's sent (or should be) to the processing bank each day. They don't store transaction records.

If you want to retrieve the details of an individual transaction going back a few months, you'll need to contact your merchant service provider. They'll be able to look up the details of the transaction, but they'll most likely charge you a retrieval fee to do so. A retrieval fee is typically about $5. You can see what yours is by looking at the schedule of fees on your merchant account application or by asking your provider.

On October 23, 2010 jose said:

I just got a credit card machine and i only have the fax and fhone connections. How can i plug in my terminal? do i need to have an extra phone connection? or can i plug my phone line to the terminal?

On October 25, 2010 said:

Hi Jose,

Many businesses put their credit card machine on the same telephone line as their fax machine using a splitter. How well this will work depends on how often the fax and credit card machine are used. If you feel that they will interfere with one another, it's best to get a dedicated phone line for your credit card machine.

Optionally (although the suggestion may be a little late), there are credit card machines that communicate via the Internet that don't require a phone line but rather a CAT 5 cable connection from a router.

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